29 October 2014
Anyone living in the UK who is currently deemed ‘non UK domiciled’ for tax purposes should consider taking steps to protect their worldwide assets. Potential changes to the domicile rules could mean more foreign nationals becoming deemed UK domiciled and their worldwide assets becoming liable to UK inheritance tax (IHT) on their death.
It has been widely speculated for some time that the deemed domicile rules for foreign nationals living in the UK could be changed. Speculation has heightened following HMRC’s recent focus on the subject of non-residents living in the UK, having recently issued a consultation paper restricting non-resident’s entitlement to the personal allowance. This, combined with an election next year, might make wealthy foreigners an easy target to raise more taxes.
Currently the UK deemed domicile rule is based on the number of years someone is in the UK. If someone is in the UK for 17 out of the last 20 tax years then they will become deemed UK domiciled for IHT purposes, and all worldwide assets will be subject to UK IHT on their death. This calculation could be amended at any point in the future, and there is some speculation that the number of years could reduce from 17 down to a much lower figure, e.g. 7 years.
People who might be affected by a change in the deemed domicile rules should therefore consider taking steps now to protect their assets. There is a trust available to non-domiciled people living in the UK which enables them to protect their assets from IHT. The trust, called the ‘excluded property trust’, is already extremely popular in places like London, where there are high numbers of wealthy non UK domiciled individuals with considerable liquid assets to protect. To make the offshore assets simpler, more efficient to manage, and income and capital gain tax friendly, they could consider placing the assets inside an offshore bond before placing them inside the trust.
Rachael Griffin, financial planning expert, Old Mutual Wealth:
“The number of wealthy individuals who spend a considerable amount of time in this country is increasing. These individuals may be unaware of the deemed domicile rules. The speculation around the potential changes may create concern and uncertainty. Moving offshore assets into an excluded property trust now provides the non-domiciled individual with reassurance that their assets will be free of UK inheritance tax on their death”.